Final answer:
The future value of the business after 2 years at a 3% compounded annual growth rate is calculated using the compound interest formula and is approximately $132,612.50, making option b) $130,000 the closest given choice.
Step-by-step explanation:
The question is asking to calculate the future value of a business currently valued at $125,000 that is expected to grow at a compounded annual growth rate of 3% over the next 2 years. The formula for calculating compound interest is as follows:
Future Value = Present Value × (1 + g)^n
Where 'Present Value' is the current value of the business, 'g' is the annual growth rate as a decimal, and 'n' is the number of years into the future we are predicting.
Given: Present Value = $125,000, g = 0.03 (3% as a decimal), n = 2 years
Future Value = $125,000 × (1 + 0.03)^2
Future Value = $125,000 × (1.03)^2
Future Value = $125,000 × 1.0609
Future Value = $132,612.50
Therefore, the closest answer from the options given is b) $130,000, though the exact calculation is a bit higher at $132,612.50.